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This is how Bitcoin can revolutionize micro lending

How Blockchain is Revolutionizing Micro Lending

With a thriving microlending industry spanning many nations, many small business owners cherish the hopes of taking advantage of these lending opportunities to get themselves out of poverty. They are all hopeful that that small loan will help them to make that significant difference that will assist them in making progressive steps into the big league dominated by a few big boys. However, the reality in the lives of millions of people in the formal microlending sector is not as rosy as it may appear to be in adverts. For instance, the critics of the established lending institutions claim that the entire system is tilted to benefit the lenders, leaving the borrower on the receiving end where they live at the mercy of the lender. Doesn’t this description sound like what sage Solomon once said that, “The borrower is a slave to the buyer?”

On the contrary, we are just opening your eyes to a better way of meeting your need for funding. The aim of this post is to show you a better and future-proof alternative that is free from the traditional way of lending where borrowers pay exorbitant interest and rates that oil the pockets of a few lenders. We are drawing your attention to what Blockchain technology can do for the small and medium business bracket should it embrace this revolution fully. We are talking about a technology that has no local barriers that are controlled by a centralized system that is at the mercy of a few dominant players. If you are in the small and medium bracket of business enterprise, then it is necessary to pay attention to what we will discuss in this post and see how you stand to benefit from this technology.

But before proceeding to see how Blockchain can benefit you, we need to take some time to find out what this technology is all about. In brief, Blockchain is a kind of peer-to-peer data communication and file sharing system that builds trust and confidence among members of a universally distributed network. Under this setting, most of the network’s members agree, and no single party or group controls the majority in the network. This platform, created by Bitcoin, therefore sets up clearly defined incentives that benefit the micro lending world. Moreover, with a platform that has peers who are operating by mutual trust, the playing field is level with no single party feeling that they are the superior one in the deal. This arrangement is an exact opposite of what happens in the traditional financial and lending system that has a centralized nerve center that controls everything.

It reduces overhead and operating costs

Since traditional lending institutions incur higher operations costs, you can be sure that borrowers will pay for all that cost in the form of interest rates, and most of the time, very high. However, by bringing Blockchain into the picture, things are bound to work different since the lender does not incur such costs.

Reducing possible graft

When the functions of a centralized system are delegated to a smaller network, we have high chances of corruption taking place. For instance, some lending managers in a devolved system can ask for a bribe to facilitate the approval of a loan. But with Blockchain, everything is done transparently on an online platform where all the members of a network can see the transactions.

Speeding up transaction verification

Another way by which Blockchain can revolutionize microlending is through the speeding of the verification process. Here, verification needs the network member’s sign off on transactions since after sending a transaction, a member cannot send the transaction again to spend the same money twice. With such protocols put in place to verify transactions, Blockchain networks can verify transactions within minutes or seconds, unlike in the traditional banking system where it takes days or weeks to do so.

Speeding up transactions

Unlike the traditional centralized systems, the system issues a notice to the rest of the network that someone sent a transaction followed by publishes that record to the rest of the networks. When transactions go through such a network, users can get more confirmations that lead to faster resolutions for the transactions of all sizes.

A wider pool of lenders

Another advantage that Blockchain has that can revolutionize the micro lending system is its ability to offer access to international funding while reducing reliance on the traditional banking bureaucracy. The reason is that it offers small and medium-sized businesses a chance of depending on other local establishments, and hence, a chance for both banked and unbanked businesses. This increase in the number of potential lenders makes it easy for small businesses to access more lenders.

With the above facts cemented in your mind, you can now see the prospects of a better lending future for small business owners. With Blockchain in place, entrepreneurs can now enjoy the benefits of a decentralized lending system based on mutual trust and controls.

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